Entropy increase through modern money creation of fractional reserve system in banking

Abstract

Money is simply treated as one of constraints when engineers solve their problems throughout different layers of a system engineering processes without usually questioning the effect of modern money creation in their problems. However, almost all engineering efforts are directed and affected by this modern money creation system of Fractional Reserve System (FRS), causing the entropy increase in all economies due to globalized world. Vast majority of money in modern economies is created by private banks through a set of processes called Fractional Reserve System (FRS). In order a bank to be able to create money, someone is needed to borrow from this bank. In FRS, private banks keep only a small fraction of money given them by their depositors and lend out the remaining. Hence, the amount of money created in an economy depends on the fractional ratio of money to be kept usually kept in Central Bank accounts. This study shows how FRS causes the entropy increase in economies and suggests solutions to overcome the problem.